Another day, another Elon Musk controversy. The Tesla CEO and co-founder has now been sued in a class-action lawsuit led by shareholder Marc Rasella. The lawsuit alleges that Musk intentionally delayed his SEC filings disclosing his initial 5% buyout of Twitter shares to keep the price artificially low. This artificial deflation then allowed him to buy more shares at a lower price.
The lawsuit details that Musk was required to disclose his shares in an SEC filing by March 24, by which time he had purchased 5% of Twitter's shares. As Reuters notes, U.S. federal laws requires investors to disclose their purchase within 10 days if they buy a 5% stake in the company. However, the executive did not abide by this deadline and instead filed this information on April 1, by the time he had acquired 4.2% more shares at a relatively static, low price.
Rasella says that apart from enabling Musk to buy shares at a lower price, it also meant that other shareholders missed out on the profit from the increased stock price. The shareholder notes that after Musk disclosed his purchase, stock price grew by 27%, from $39.31 to $49.97.
Prior to this, Rasella sold 35 of his Twitter shares between March 25 - March 29, at the previous rate of $39.31 per share, which means that he did miss out on some additional profit. The class-action demands unspecified punitive and compensatory damages.
Elon Musk's Twitter stake has been the subject of much interest in the tech space for the past few weeks. The executive is currently the largest shareholder in the company with a 9.2% stake. He was offered a seat on Twitter's board but declined it on the last second. Although Twitter's CEO hinted at background checks and a fiduciary status for Musk in a cryptic statement, declining this seat also means that Musk can now purchase more than 14.9% of Twitter and even take over the company, both of the things that he could not legally do had he accepted the seat.